Banks hit worldwide by US ‘fraud’
BBC – 16 Dec 2008
Some of the world’s biggest banks have revealed they are victims of an alleged fraud which has lost $50bn (£33bn).
Bernard Madoff, who was arrested on Thursday, has been charged with fraud in what is being described as one of the biggest-ever such cases.
Among the banks that have been hit are Britain’s HSBC and RBS, Spain’s Santander and France’s BNP Paribas.
Other victims include film director Stephen Spielberg’s Wunderkinder Foundation charity.
One of the City’s best-known fund managers has criticised US regulators for not detecting the alleged fraud.
Nicola Horlick, boss of Bramdean investments, told the BBC: “I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they have fallen down on the job.”
“This is the biggest financial scandal, probably in the history of the markets – $50bn is a huge amount of money,” she said.
Counting the cost
Banks and financial institutions across the world had investments with Bernard Madoff, but not all have yet confirmed what their potential losses might be.
Among the potential losers is Spain’s largest bank, Santander, which owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley.
The bank had a direct exposure of 17m euros ($23m; £15m), but clients of its Optimal fund management unit have another 2.3bn euros invested in the firm run by Bernard Madoff
Britain’s HSBC said it had investments of about $1bn, which could be affected.
Royal Bank of Scotland said it could potentially lose about £400m ($601m) if all its investments had to be written off.
The French bank, Natixis, a subsidiary of Caisse d’Epargne and Banque Populaire, said it could potentially lose up to 450m euros (£402m; $605m).
One of the world’s biggest investment groups, Man, said it had invested about $360m through its RMF institutional fund of funds business, representing 0.5% of its total funds.
Banking shares fell around the world, with Royal Bank of Scotland dropping 3.7%, HSBC losing 1.2% and banks making up the top four losers on New York’s Dow Jones Industrial Average.
‘Systemic failure’
Meanwhile, some of the biggest private losers seem to have been members of the Palm Beach country club, where many of Mr Madoff’s wealthy clients were recruited.
According to some reports, the list of prominent victims include a New Jersey Senator, the owners of the New York Mets and the charities run by film director Stephen Spielberg and Nobel Prize winning writer Elie Wiesel.
Mrs Horlick said 9% of Bramdean’s own funds were invested with Mr Madoff, but that even if the money was written off, the fund involved would be down just 4%.
“I just want to make it clear to investors that even after this, they would have done extremely well, relative to anything else they could have invested in,” she said.
In a statement, Bramdean said: “The allegations made appear to point to a systemic failure of the regulatory and securities markets regime in the US.”
However, some argued that the fund managers should themselves have done more.
“City figures cannot call for light touch regulation yet at the same time complain that regulators missed risks that the industry failed to spot,” said Simon Morris, a partner with City law firm CMS Cameron McKenna.
“It’s the unequivocal job of the fund manager to check out the bona fides of whoever they chose to pass their customers’ money onto,” he said.
Antonio Borges, chairman of the Hedge Fund Standards Board, said the scandal highlighted the need for “robust governance practices and oversight via independent boards, which will challenge management procedures and behaviour”.

From Paris to Tokyo, more Madoff victims emerge
Bloomberg (International Herald Tribune) – 16 Dec 2008
MADRID: More banks, from Paris to Tokyo to Madrid, emerged Monday as victims of Bernard Madoff’s alleged Ponzi scheme.
BNP Paribas, the biggest French bank, said Sunday that it has as much as €350 million, or $472 million, at risk from Madoff’s investment advisory business. Nomura Holdings of Japan has ¥27.5 billion, or $302 million, at risk from Madoff’s funds, while Banco Bilbao Vizcaya Argentaria of Spain may face up to €300 million in losses.
Madoff, 70, was arrested by federal prosecutors Thursday and charged with operating what he told his sons was a long-running Ponzi scheme in the New York-based firm’s business advising rich people, hedge funds and institutions. He told senior employees that the firm was insolvent and “had been for years,” prosecutors said in the criminal complaint.
“A frothy market encourages slack oversight,” said Peter Hahn, a fellow of finance at London’s Cass Business School. “Whenever something like this happens, everyone who has been hit will comb through their investments.”
The Madoff collapse comes as banks and investment companies are reeling from falling asset prices and sputtering economies after the U.S. subprime mortgage market crash. Financial firms have reported almost $1 trillion of credit losses and writedowns since the start of 2007, data compiled by Bloomberg show.
Madoff, who had advised the U.S. Securities and Exchange Commission on how to regulate markets, described his investment management operations as “one big lie,” prosecutors said. Investors have disclosed about $24 billion of investments in Madoff’s funds, according to data compiled by Bloomberg.
Ira Sorkin, a lawyer at Dickstein Shapiro in New York representing Madoff, did not reply to a phone call and e-mail seeking comment. Sorkin said on Saturday that the situation was “a tragedy.”
BNP Paribas fell as much as 9.8 percent in Paris trading after reporting its Madoff exposure and suffering a setback in its plan to buy the Belgian operations of Fortis. The Brussels Court of Appeals ruled Friday that the sale of Fortis assets must be put to investors for a vote before Feb. 12. The court decision complicates BNP Paribas’s plan to complete the purchase quickly and preserve Fortis’s customer base.
BBVA, the Spanish lender, said it may face losses from the hedging of structured products linked to Madoff. BBVA acted for other financial institutions and investors to set up products linked to third-party funds that had invested in Madoff Investment Securities, the Bilbao, Spain-based lender said in a filing Monday to market regulators in Madrid. BBVA has no direct investments in Madoff.
Banco Santander, a Spanish rival, said Sunday that its hedge fund unit invested €2.33 billion of client funds with Madoff. The bank’s Optimal Investment Services unit placed money with Madoff through its Optimal Strategic U.S. Equity fund, the Spanish lender said.
“It’s not Santander’s own money, and they’re not to blame, but of course it will be taken as something negative,” said Alberto Espelosin, a manager at Ibercaja Gestion.
Santander dropped as much as 4.9 percent in Madrid trading Monday. Santander, based in the Spanish city of the same name, lost 53 percent of its market value this year. BBVA advanced 4 cents, or 0.5 percent, to €8.36.
Royal Bank of Scotland could lose as much as £400 million, or $601 million, on investments linked to Madoff. The bank, 58 percent owned by the government, said it had “exposure” through trading and collateralized lending to funds of hedge funds invested with Madoff.
Natixis, based in Paris, said Monday that it has as much as €450 million of client funds invested with Madoff.
Man Group, Europe’s largest publicly traded hedge-fund company, has about $360 million invested directly or indirectly in funds linked to Madoff. The investments in two Madoff funds represent 0.5 percent of Man’s total assets under management, the London-based company said.
HSBC Holdings, Europe’s largest bank by market value, may have about $1 billion at stake, The Financial Times said, citing people close to the situation. Brendan McNamara, a spokesman for HSBC, declined to comment on the matter.
The list of victims of the alleged scheme may also include the real-estate magnate Mortimer Zuckerman, the foundation of the Nobel laureate Elie Wiesel, Senator Frank Lautenberg and a charity of the movie director Steven Spielberg, The Wall Street Journal reported, without saying where it got the information.